PARTNER PERSPECTIVES:

Transcription

1 LAW FIRM SURVEY RESULTS 2016 PARTNER PERSPECTIVES: How Law Firms Are Incorporating Efficiency, the Cloud and Technology to Meet Enhanced Client Demands

2 INTRODUCTION AND EXECUTIVE SUMMARY In 2015, Recommind aligned with Ari Kaplan Advisors to engage 25 corporate legal operations leaders with Fortune 1000 corporations in a conversation about metrics, reporting, litigation support, the cloud, and the evolution of the modern law department. That research, summarized in 2015 Corporate Legal Survey: How Legal Operations, Analytics, and the Cloud are Reinventing the Corporate Law Department, revealed a community of visionary individuals who are measuring performance, constantly evaluating key decisions, and leveraging a wide array of technology to support their efforts. To contrast these perspectives and assess how outside counsel are responding to their clients dynamic views on the future of in-house legal services, Recommind again asked Ari Kaplan Advisors to conduct a series of interviews this time, of 25 AmLaw 200 law firm partners responsible for electronic discovery. This report contains the results of those discussions and reflects an interesting cross-section of perspectives on the key drivers of change in litigation support, ranging from efficiency and value to predictability and profitability. For instance, as corporations asked for greater efficiency in 2015, it was not surprising in 2016 to see law firms taking a thoughtful and collective approach to e-discovery. To that end, almost all of the partners surveyed outsource some of this work. For half of them, the clients dictate the tools and vendors used based on preferred provider relationships. For work handled internally, the vast majority of surveyed firms employed a centralized approach for hosting and managing discovery data. Those details are compelling because almost half of corporate legal operations reported in 2015 that they had consolidated their e-discovery service providers, with an even split between one and two providers. As corporations do so, there are often fewer opportunities for their outside lawyers, potentially prompting firms to be more aggressive in cost-effectively performing the tasks that other vendors can complete. It has been critical for outside counsel to become more involved in their e-discovery process because, in 2015, only about a quarter of legal operations respondents reported that their teams received enough insight into the discovery processes of their outside counsel. Even more importantly, nearly half rated the effectiveness of reports or metrics they did receive on discovery budgets and review efficiency as not particularly effective (the lowest rating). With three-quarters of law firm partners now claiming to provide reports on discovery budgets and review efficiency, the message from clients has apparently reached outside counsel. As part of this renewed reporting process, law firms are also tracking metrics on review staffing, data volumes, and review spending to provide a level of awareness that clients are demanding. This also enhances the firm s ultimate value and reflects a more holistic approach, instead of a fragmented philosophy. In the same way that law firms are eager to demonstrate efficiency and holistic protocols, they are also recognizing that their clients realize the value of technology to reduce costs and streamline key aspects of litigation. For that reason, almost all of the law firm leaders surveyed used predictive coding in 2015 and are using, or are planning to use it in 2016, with about two-thirds rating their experience at a six or higher on a scale of one to ten. The use of that technology is part of a larger global trend to showcase a culture of innovation; however, some aspects, such as cloud adoption, are developing at a slower pace. While slightly BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

3 more than half of law firm leaders reported that their firms use cloud-based tools, when asked to rate the degree to which their firms use them, almost two-thirds ranked their organizations at a one (on a scale of one to five). Extensive recent news coverage of legal industry security breaches is prompting many law firm leaders to renew their focus on security, especially since all but a few respondents reported having data security concerns around distributing electronically stored information to multiple discovery vendors and clients. This is consistent with the impressions of the corporate legal operations directors surveyed in 2015, 72% of whom shared this concern. We specifically focused on corporate legal teams last year to identify their strengths and weaknesses, while gauging their approach to metrics, cloud computing, auditing information practices, and reporting. Our goal with this year s survey was to compare the views of the nation s leading law firm e-discovery attorneys and determine whether they are pivoting to implement meaningful change and enhanced responsiveness to their clients. We found that while they are demonstrating positive momentum, they still struggle with reconciling security and the cloud, making valuable use of the metrics they track, and balancing their impressions of predictive coding with the nature of advancement over the past few years. There is also a split in the perceived utility of outsourcing discovery. LAW FIRM AND CORPORATE LEGAL OPERATIONS SURVEY PARTICIPANTS In June and July of 2016, Ari Kaplan Advisors interviewed 25 AmLaw 200 law firm partners responsible for e-discovery. 48% of those surveyed are from firms with over 1,000 lawyers and 68% focus at least half of their practice on e-discovery. All have responsibility for selecting vendors, developing processes, and counseling clients in litigation. Previously, in July and August of 2015, Ari Kaplan Advisors interviewed 25 legal operations leaders at predominantly Fortune 500 companies. 80% of respondents served as their organization s director of legal operations (or in an equally senior role, e.g., law department chief of staff, vice president of operations, or chief operating officer), charged with a vast array of responsibilities. 64% were from companies with revenues over $10 billion and 76% were at companies with more than 10,000 employees. This report will highlight points of consistency and inconsistency in their views to track industry trends and support key predictions. THE CHANGING NATURE OF LITIGATION In a sign of a shift in their litigation profiles, 48% of respondents indicated that internal investigations are rising, while 68% report an increase in government/ regulatory investigations. There has been huge growth in this area [of regulatory investigations], particularly as it relates to financial services, said one respondent. That impression of growth is reflected in last year s results from corporate operations leaders of which 32% reported a rise in internal investigations There has been huge growth in this area [of regulatory investigations], particularly as it relates to financial services BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

4 and 20% reported an increase in regulatory or government investigations. The ebb and flow of litigation prompted us to ask how law firms define success in e-discovery. From cutting costs to keeping out of trouble, the responses varied according the culture of each organization. Only 12% of the respondents were unable to provide any benchmark whatsoever. Success is providing efficiency, good value, and good advice to our client; the best way to measure is to evaluate legal advice in the context of what is highly technical, advised one partner. Success is effective budgeting and predictability; the better that my team can do to get it right on budget, the more effective the project is, added another. In terms of hallmarks for success, 32% acknowledged the importance of controlling costs, 16% noted the value of adhering to budgets, 16% cited client satisfaction, 16% recognized the importance of profitability, and 12% cited the elimination of mistakes. EFFICIENCY AND CLIENT PREFERENCES DRIVING LAW FIRMS TO OUTSOURCE E-DISCOVERY In an effort to fuel success through efficiency, 88% of law firm leaders outsource some aspect of their e-discovery. Of those, 44% reported that their clients dictate the tools and vendors to use based on preferred provider relationships on at least half of their matters. 100% of the respondents noted that their clients contract with vendors directly, though not all use the vendor in lieu of the firm depending on the case. There are a huge number of clients that have their own preferred providers, but if there is a shot at the firm doing the work, many clients will ask the firm to do so, noted one partner. In fact, 12% of the law firms surveyed perform all of their e-discovery in-house. They have made a strategic decision to invest in technology, staffing, and process improvements to accommodate this operational mandate. Others handle a significant portion, but still rely on outside support for overflow or larger projects. 24% outsource one third or fewer of their e-discovery projects, while 40% outsource 75% or more of that work. 33% reported that their team maintains specific data size thresholds for outsourcing, ranging from a few gigabytes to hundreds. The firm outsources parts of e-discovery due to lack of internal capabilities or tools, said one respondent echoing the comments of a number of partners. The firm has had an e-discovery practice group for almost two decades and has the capacity to serve all of the needs of the firm, countered another. Regardless of the level of outsourcing, 80% of the respondents reported that their firms have employed a centralized approach for hosting and managing discovery data. It is cheaper for clients and we are more efficient as a group because are not dependent 80 % EMPLOY A CENTRALIZED APPROACH FOR HOSTING & MANAGING DISCOVERY DATA on responsiveness of third parties, explained one partner. We are more profitable; it is better for the client, better for our group, and better for the firm, the lawyer added. That said, a number of respondents highlighted that the combination of firm resources with client-selected providers decentralizes some of the BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

5 work. In the early days, the firm had its own in-house solution, but now many clients have preferred vendors so it tends to be a patchwork. In comparison, 40% of corporate legal operations respondents reported in 2015 that they had consolidated their e-discovery service providers, with an even split between one and two providers. Half of them further employed a centralized approach for hosting and managing discovery data. MANY FIRMS MAINTAIN E-DISCOVERY METRICS Law firms, like their clients, have come to appreciate the value of maintaining metrics to showcase their progress, efficiency, and litigation savvy. They also understand that careful calculations provide a persuasive advantage when developing strategy. Regarding total review spend, for most clients, budgets go down to the task level so this is carefully tracked, remarked one respondent. The firm does not track total review spend because most clients don t have a budget; if they do, it is a budget with an asterisk, echoed another partner. For others, there is no need to manually track these statistics because the firm s vendor does so. We don t comprehensively track the amount of data per matter, the per GB/TB data spend, or the total review spend because the firm outsources most of its work; if it gets a good comprehensive price, it is not necessary to track those metrics. CLO Survey (2015) Law Firm Survey (2016) The company has started to track this data; it is more real-time whack-a-mole than a structured comparison, admitted one legal operations participant. Given the differential between law firm partners and legal operations leaders, it is likely that the emphasis on metrics over the past two years has had a dramatic impact on how clients measure the performance of their outside counsel. It appears that law firms are now tracking metrics more comprehensively in direct response to the importance that their clients place on these figures. The increase is consistent with the commentary that legal operations leaders provided in the 2015 report. Despite the renewed emphasis on these numbers, more than half of the law firm partners surveyed could not calculate an average data volume for their e-discovery projects, which indicates that this area is still developing. Further, while 76% do generate reports on e-discovery metrics, not all of them share those updates with clients on a regular basis BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

6 Nevertheless, the trend is shifting toward more clarity. Clients are increasingly demanding reports and the technology to generate the metrics is better, remarked on partner. This type of transparency is a value-add to the client; it creates a dialogue with the client that is otherwise not taking place, added another. Generating such transparency undeniably remains a critical component of client service, as the 2015 study of legal operations teams found that only 28% of respondents received enough insight into the discovery processes of their outside counsel, while 40% of them rated the effectiveness of reports or metrics they did receive on discovery budgets and review efficiency as not particularly effective (the lowest rating). Said one corporate legal operations leader in 2015, We struggle with outside counsel; they are very good about submitting invoices, but not on case status reports. USE OF PREDICTIVE CODING AND ANALYTICS IS RISING Given the increased emphasis on efficiency metrics, it is not surprising that 88% of the law firm leaders surveyed used predictive coding in 2015 as part of their efforts to assess large document sets more quickly and accurately. In fact, 68% of the respondents rated their experience with predictive coding at a six or higher on a scale of one to ten. One partner described it as Extraordinarily effective, and another noted, When properly used as part of a comprehensive approach, I just don t think there is any other way to go these days. Acknowledging its evolution and reliability, one respondent reported a 40% savings on a recent review. I think it is great, the partner remarked. I trust the artificial intelligence more than I trust human reviewers; I am a firm believer that you get better results using computer assisted review. Interestingly, the cost was not as significant factor as it was a year ago for corporate legal operations leaders, potentially indicating that predictive coding is becoming a more integral part of the e-discovery lifecycle. When asked whether the cost of using analytics or predictive coding tools were not an issue, only 52% of law firm partners would take advantage of those tools more often because of how these options are often included in their digital portfolios at no extra charge. This is in contrast to legal operations directors who overwhelmingly reported in 2015 that they would do so, with 92% attracted to greater use if cost were not a factor. One such law department leader had indicated, We are very pro technology so we do anything we can to have a machine do the heavy lifting. I trust the artificial intelligence more than I trust human reviewers; I am a firm believer that you get better results using computer assisted review BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED Did you use predictive coding in 2015? 12% 88% YES NO The cost savings appear elsewhere even if you are using an expensive tool; I have not had an experience where the cost of analytics is a hindrance to using it, explained one partner. Many of the arrangements the firm has with preferred vendors allow it to have access to the analytics tools at a fixed price to allow the to be as efficient as possible, added another.

7 LAW FIRM LEADERS ARE SLOWLY EMBRACING THE CLOUD On the surface, it appears as if law firm leaders are migrating to the cloud, with 56% reporting that their firms use cloud-based tools. However, most also avoid cloud collaboration tools like Box and Dropbox, with only 28% adopting technology for that purpose. Further, most of that cloud usage is likely very minor because, when asked to rate the degree to which their firms use cloud-based tools for its business on a scale of one to five, 64% ranked their organizations at a one. 80% selected two or below both for usage and 56% for their firm s previous willingness to leverage the cloud. In what seems to be a sign of progress, 60% ranked their firm s willingness to adopt cloud solutions in the coming year at a three or above. In addition, only 16% currently subscribe to a cloud-based discovery platform as an alternative to an on-premise tool. The 2015 corporate legal operations respondents used a variety of cloud-based tools, but when asked to rank their company s use of them, only 16% gave a rating of two or below, while 35% rated their company s past openness at a two or below. 84% rated their company s openness to implementing cloud solutions in the coming year at three or above, with 72% assigning a four or five. I think the company is very open to it, said one leader. While corporations described an attraction to the practical impact of the cloud, including cost and accessibility, law firms remain concerned with what they perceive as security issues associated with the cloud. One respondent summarized the consensus by noting, There is a lot of hope and benefit to the cloud, but law firms are taking a conservative approach given data security concerns. Further emphasizing the potential for change, another remarked, Law firms are typically slow movers in terms of technology and there is a great resistance to moving data outside of the four walls of the firm; that resistance is weakening as technology becomes more common. Law firms are typically slow movers in terms of technology and there is a great resistance to moving data outside of the four walls of the firm; that resistance is weakening as technology becomes more common. There remains a general concern over data protection: 88% of respondents reported having data security concerns around distributing electronically stored information to multiple discovery vendors and clients. This is consistent with the impressions of the corporate legal operations directors surveyed in 2015, 72% of which shared this concern and emphasized the importance of safeguarding their data. I don t think we would engage with a firm that we didn t think had adequate security resources and systems, advised a 2015 in-house participant. For that reason, Data security is of huge importance to the firm and the firm has successfully implemented great systems and controls to protect client data; that is why cloud resources are unlikely, explained a law firm partner BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

8 AUDITING AND MEASURING TECHNICAL COMPETENCY IS STILL RARE Despite concerns by clients and their outside counsel for data safeguards and security protocols, audits of law firm processes are uncommon. (The term audit is used liberally to indicate any client inquiry into a firm s processes, technology, and project management, among other issues.) While a number of partners highlighted that clients hold their outside counsel accountable for budgets and cost estimates, Client audits are rare; clients prefer standard reporting, said one respondent. There are a handful of clients that are beginning to adopt audit standards or are internally developing protocols, which they expect to be followed; it is a relatively new and comparatively rare situation, advised another. I wish they did [audit us] because people would appreciate our skill more. 28% of respondents reported that their clients conduct audits of their law firm s e-discovery processes. And, 16% have clients that audit their technical competency. This is consistent with legal operations leaders who reported in 2015 that only 4% often audit the technological competency and systems of their outside counsel, while 12% do so sometimes. A few spotlighted technological audits as a mandate for 2016, which may account for the increase by law firms. Ironically, a number of law firm partners welcome more audits and competency tests because they feel it would give them a competitive advantage. I wish they did [audit us] because people would appreciate our skill more, noted one partner. The numbers are likely to rise given that 52% of partners already audit their internal technological competency and systems often or always. E-DISCOVERY AND LAW FIRM PROFITABILITY 68% of law firm partners revealed that they charge flat rate for some aspects of their e-discovery support services. The comments range from: The firm may provide a fixed fee based on the amount of data, to The firm has supported flat fees for almost a decade. Not everyone, however, agrees with this practice. All you are doing with flat fees is to encourage bad behavior and incentivize a firm to maximize the number of documents it pushes through the system, countered one partner. Ultimately, 100% of the respondents bill their time hourly and most have some additional cost for litigation support. 64% also noted that e-discovery is a pass-through cost whether conducted internally or outsourced and 64% advised that it is an add-on service with a variable cost. One lawyer summarized the majority noting that the firm charges monthly per gigabyte service fees that include hosting, processing, and project management, [in addition to] hourly rates for legal counsel. CONCLUSION That data in this report clearly indicates that outside counsel are adapting their e-discovery programs and perspectives to better meet the needs of their corporate clients in terms of finding efficiencies, securing data, and providing reports. In 2015, 44% of the corporate legal operations leaders surveyed noted that the cost of discovery impacts their litigation strategy, while 36% indicated that their investigation strategy is challenged by the cost of processing and hosting data. In an effort to accommodate resource constraints and BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED

9 enhance efficiency, 88% of law firm leaders outsource some aspect of their e-discovery and 80% have employed a centralized approach for hosting and managing discovery data. In addition, a year ago, only 28% of legal operations respondents had enough insight into the discovery processes of their outside counsel and today law firms are tracking metrics associated with review efficiency, spending, and data volumes in large numbers, with 76% generating reports on their progress and budgets. Although not all of them share those updates with clients on a regular basis, the trend clearly is shifting toward more clarity and transparency. In fact, 28% of outside counsel respondents advised that their clients conduct audits of their law firm s e-discovery processes to maintain oversight. And, there is complete alignment on the use of analytics on predictive coding. Following the 92% of legal operations leaders who noted in 2015 that if the cost of data enrichment for analytics and predictive coding were not an issue, their companies would take advantage of these tools more often, law firms appear to be adopting these tools more broadly. Use of the cloud, however, still remains a concern for law firms. Though 60% ranked their firm s willingness to adopt cloud solutions in the coming year at a three or above (on a scale of one to five), nearly two-thirds rated the degree to which their firms use cloudbased tools for its business at a one (on a scale of one to five). This is in stark contrast to the appeal the cloud had a year ago to corporate legal teams, with 80% rating their organization s use of cloudbased tools at a three or above. In a shifting litigation landscape characterized by change, uncertainty, and disagreement, this report provides guidance and benchmarking support on key e-discovery and technology concerns. It confirms that law firms are aligning their efforts to provide their clients with services that meet or exceed their expectations, and that they are continuing to tailor their efforts to thrive a value driven environment. ABOUT ARI KAPLAN Ari Kaplan, a leading legal industry analyst, is an inaugural Fastcase 50 honoree, a finalist for ILTA s 2015 Thought Leader of the Year award, and a 2016 fellow-elect of the College of Law Practice Management. His book, Reinventing Professional Services: Building Your Business in the Digital Marketplace, was published in Japanese, and West Academic released the second edition of The Opportunity Maker: Strategies for Inspiring Your Legal Career Through Creative Networking and Business Development in He is the principal researcher for a variety of widely distributed benchmarking reports and has also been the keynote speaker for events in Australia, Canada, the United Kingdom, and throughout the U.S. Kaplan is also the founder of the Lawcountability business development platform, a finalist for ILTA s 2015 Innovative Solution Provider of the Year award, and a two-time Ironman triathlon finisher BY RECOMMIND AND ARI KAPLAN ADVISORS ALL RIGHTS RESERVED